Monday, March 3, 2008

Loan Waiver : Good or Bad?

Well, after months of speculation and in depth coverage of what the budget will be like, our FM P. Chidambaram unveiled the Union budget on 29th February,2008. The budget is populist, not surprising since this being the last year of UPA government before the next elections which are stated to be held next year. The biggest point of controversy has been the Rs. 60,000 crore loan waiver for the farmers. Almost the entire industry thinks that it is a bad move. I don't know I am confused on this matter. On the one hand it is being said that this will encourage further defaults by farmers in the future and leaves the honest farmer who has paid all his dues look foolish. Moreover, the government has not mentioned from where it is going to fund this. It actually amounts to 15 billion dolllars. And the sixth pay commission whose report will be tabled by 31st March will further add to government burden. So the target of FRBM Act to curtail the fiscal deficit to 3% of the GDP, which the government projects to be about 2.5% will not be met and rise. Moreover, the farmers who are in debt, not all of them have taken credit from the banks but from the moneylenders who charge exorbitantly high rates of interest. So it will mean nothing to them.On the other hand we have farmer suicides continuing unabated in the country especially Vidarbha. This comes as relief to these farmers.What else can we do immediately to succour them? Is there anything we can do right now to stop this? However, let this be made clear that this is only a one time payment. Also when USA can announce a fiscal package of 150 billion dollars to prevent its economy from a full scale recession due to the subprime crisis, we can also do this to give a boost to the agriculture sector which has become a stumbling block to growth of the economy. Along with that the government should also adopt measures to improve irrigation facilities where the farmers are mostly dependent on vagaries of the monsoon. Let the farmer be given more incentives, for example a higher support price and he be allowed to sell his produce wherever he wants. The government pays about double the amount to import wheat than it does to purchase it from the farmer. Surely it can be more prudent in this regard. In a county where 70% of the population is dependent on agriculture and the gap between Bharat and India Inc. widening, we cannot proceed forward to being a developed nation until all of us grow together i.e. inclusive growth. So, I just hope this works and the next government be formed without the Left support so that the reform process could begin as the Economic Survey 2007-08 states.And also the Indo-US nuclear deal goes through. I seriously hope it does.